Recent innovations in the packaging of milk have created new opportunities for vending operators, particularly the availability of shelf stable products. This and other developments - such as the increased variety of national name brand milk products - support what many see as the rising importance of milk as a nutritional product in vending.

The vending operator community has begun to recognize the need to offer more nutritional products in recent years as the public has increasingly scrutinized product offerings from all foodservice channels. While milk has not historically been a big seller in vending, many operators recognize its importance as a healthy offering.

A recent survey conducted by the Milk Processor Education Program (MilkPEP) found concerns that prevented operators from vending milk in the past are declining. (See chart 2.)

While most of the concerns that have been raised in the past have become less critical, operators do remain concerned about cost issues associated with milk. Cost in any category is an issue in today's profit-challenged business environment.

Operators agree that milk offers a growth opportunity, given the ongoing need for variety, not just in the cold food machine - the largest format for vended milk - but in the changing cold drink business. The most significant development for milk as a player in the cold beverage machine has been the involvement of the major cold drink bottling companies.

BOTTLING ORGANIZATIONS RECOGNIZE THE OPPORTUNITY

Both the Coca-Cola Co. and Pepsi-Cola Co. bottling organizations have introduced branded, 14-ounce, shelf stable, flavored milk in the last year.

Coca-Cola Enterprises Inc., the nation's largest Coke bottler, recently acquired a majority stake in Bravo Foods International Corp., which manufactures the Slammers® line, which features several Masterfoods candy brands. Meanwhile, PepsiCo Inc. has rolled outs its Quaker Milk Chillers in two flavors, chocolate and strawberry, for vending.

Most vending operators surveyed do not believe that either of the cold beverage giants are going to become driving forces in the milk business since milk turns are the weakest cold drink alternatives. Many operators expressed the view that the cold drink giants know they need milk to satisfy school accounts, and have responded accordingly.

But whatever role the bottlers play in the milk business, findings from the Automatic Merchandiser State of the Vending Industry Report confirmed that milk is playing a bigger role in cold drink machines. Cold drink machines represented about a third of all milk sales in 2005, posting a steady increase in the past four years.

Milk sales overall rose close to 10 percentage points in 2005, the State of the Vending Industry Report noted. Vend product distributors interviewed by Automatic Merchandiser confirmed that milk sales increased in 2005 for fresh, extended shelf life and shelf stable milk.

MILKPEP CONFIRMS RISING OPERATOR INTEREST

The MilkPEP vending operator survey, conducted by The Beverage Marketing Corp., the New York City-based beverage consultancy, found a rising interest in milk vending this past year. The survey found 7.7 percent of the operators who did not vend milk in 2005 were considering it for the next year, compared to 4.6 percent who said this in 2004.

When asked why they do not vend milk, the survey found that all of the reasons mentioned in previous years were less important in 2005, except for pricing and profitability. (See chart 2.) Shelf life, consumer demand, equipment issues and product issues were all less important to operators than in the previous year.

When asked about the level of concern about a larger number of problems (nine problems), the survey found that operators have less concern about all the problems than they did in the previous year. (See chart 3.)

Another reason that some operators aren't more enthusiastic about milk is that it is still being overshadowed by other beverage categories, such as bottled water, sports drinks and energy drinks.

"It was a fad for a while," said Bryan Touchstone, president of Universal Vending Solutions Inc., based in Rochester, N.Y. Now, milk has been overshadowed by other categories. "There's still so much competition among the various (cold drink) machines in the schools."

OPERATORS SEEK MORE SUPPLIER SUPPORT

More support from product manufacturers would make some difference, the MilkPEP survey found. The percentage of machines leased by operators doubled from 15.3 percent in 2004 to 30.6 percent in 2005. The percent who said national brand vending programs influenced them rose from 15.3 percent to 23.7 percent, although a larger number (33.9 percent) said they were not influenced by these programs.

The majority (55 percent) reported they believe milk vending will increase. Growth expectations were slightly less enthusiastic in 2005 than in 2004.

The MilkPEP survey also addressed size preferences, which influence both nutrition and profitability issues.

In regards to nutrition, smaller size packages sometimes allow operators to meet nutrition restrictions since smaller bottles have less fat and/or sugar content. This concern is usually confined to school accounts.

MILK SEEN AS PROVIDING NUTRITION

The push to sell flavored milk comes amid growing concerns about obesity and unhealthy eating, particularly in the case of children, where the incidence of obesity has more than doubled since 1970. For the past two years, health officials have been pressing schools to replace soft drinks sold in vending machines with more healthful options, such as water, fruit juice and milk.

Many nutritionists say flavored milk is a good alternative to soda, even if it contains more sugar than regular white milk. An 8-ounce glass of milk contains about 12 grams of sugar; flavored milk drinks can have 15 to 31 grams. Rachel Brandeis, a registered dietician who serves as a spokeswoman for the American Dietetic Association, often recommends flavored milk.

Some nutritionists are concerned about the high sugar and saturated fat content in some of the flavored varieties, especially since many come in 14- and 16-ounce bottles and are likely to be consumed in one sitting.

In terms of profitability, vending operators have found that some of the larger packages require too high of a price point.

The MilkPEP survey found that 14 ounces, the size that the big cold drink bottlers are now promoting in milk, gained in 2005. The survey reported that 14-ounce packages jumped from 15 percent to 29 percent of all milk vended in 2005, while 12-ounce packages held steady at 23 percent and all other sizes lost market share.

Pricing continues to be a challenging issue.

One California operator who did not want to be identified for publication said he found that 12-ounce bottles at $1.00 sold better than 16-ounce bottles at $1.25. This company has opted to work with Shamrock Farms, which produces extended shelf life (ESL) milk.

This operator noted that the ESL was a definite benefit, since it eliminated spoilage.

HELP MEETING NUTRITION REQUIREMENTS

Operators serving schools have found milk to be an important product, given school nutritional requirements. Meeting nutritional requirements has proven challenging since different school systems have different rules.

Answer Vending in Bellerose, N.Y. had to remove its 14-ounce Nesquik milk in one school system this past year, noted Tom Murn, company president. Fortunately, Nesquik recently introduced an 8-ounce package, which will allow Murn to meet that district's requirements.

Murn will have to retrofit his dedicated Nesquik machines to hold the new package.

He has found the Nesquik a good seller in his non-school accounts as well. Besides the 14-ounce Nesquik product, he carries a 10-ounce milk provided by a local dairy.

Some vending operators see the nutrition rules as helping more than hurting milk sales.

NEW USES FOR EXTENDED SHELF LIFE OFFERINGS

Rich Bosman, president of Roosevelt Milk Vending in Paramount, Calif., serves Southern California, where nutrition restrictions are among the strictest in the nation. The company operates dedicated milk machines and also sells milk to vending operators. "Kids like chocolate milk," he said. "If they can't get a Coke, they'll get chocolate milk."

Bosman thinks the extended shelf life products offer the chance to serve milk in locations that aren't large enough for weekly service. His company sells fresh milk from a local dairy and Shamrock Farms' ESL milk. Shamrock Farms carries a variety of ultra pasteurized (ESL) milk that features 90-day shelf life and is one of the only suppliers whose line includes white milk in addition to flavors.

Bosman sees the sales moving more towards plastic bottles and away from traditional gable top cartons.

EXTENDED SHELF LIFE OFFERS NEW BENEFITS

The ESL costs more than the fresh milk, Bosman said, but the less frequent service more than compensates for it. "It enables you to go every two or three weeks," he said. He sells 12-ounce extended shelf life bottles for $1.00, 16-ounce fresh milk for $1.00, and 10.67-ounce fresh milk cartons for 65 cents.

Another factor favoring ESL, according to Bosman, is the marketing being done by some of the fast food restaurants in recent years. The new ESL milk is better tasting, and consumers are more familiar with it than they were three or four years ago.

Roosevelt Milk Vending welcomes the ESL products in light of some of the changes that vending has experienced in recent years, Bosman said. The market is moving away from the blue collar accounts, which were great milk consumers. The white collar accounts, by contrast prefer the plastic bottles, and many white collar accounts don't consume enough milk to justify weekly service.

Bosman said that despite the rising popularity of flavored milk, 2 percent fat white milk remains his leading seller. This is one reason that his company has opted to work with Shamrock Farms.

Roosevelt Milk Vending uses both closed-front and glassfront machines. Bosman said glassfronts typically do 20 percent more business. Not only do they showcase more variety, he said, but the glassfront machines allow the customer to see the code dates on the milk containers, which is important for many consumers.

"People like to see what they're getting," Bosman said. "If I could, I would do nothing but glassfronts."

Bosman said the shelf stable milk products, which offer an even longer shelf life than ESL ultra pasteurized milk, are too expensive.

He is aware of the milk competition promised by Coke and Pepsi, but he has yet to witness any.

SHELF STABLE EXTENDS SHELF LIFE

Several manufacturers have introduced shelf stable products, which make it easier for operators to transport milk. Since the products have longer shelf life, operators can also stock more variety in a machine.

"The avenues (for milk) are limitless now," observed Steve Richardson, vice president of DeMitri Chesapeake Sales Inc., a vend product broker based in Baltimore, Md. "It can be handled like every other shelf stable product. It's opened up milk to OCS."

Some operators view the shelf stable products as not being real milk, but they are in fact 100 percent milk.

"Many of these items seem more like milk-based drinks," said Jim Reed, director of sales at Derringer Co., a Cincinnati, Ohio-based operation that operates many cold food machines. "I don't put shelf stable chocolate milk in the same category as fresh chocolate milk."

Reed nevertheless said some of these products are pulling incremental sales. "We have a couple of generations now that are very attracted to milk-based drinks," he said.

Reed stated that shelf stable milk will be helpful to operators for whom refrigerated transport is an issue. The milk, even if it is delivered refrigerated to the operator, can be shipped in an ambient vehicle and refrigerated again in the machine, provided it isn't opened.

PRICE REMAINS A CHALLENGE FOR SHELF STABLE PRODUCTS

One issue that Reed and other operators raised is the higher price point that shelf stable products require. "I don't think that a shelf stable product is going to command an additional price," he said.

Royalle Dining Services Inc. in Owings, Md. found that lowering the Nesquik price from $1.50 to $1.25 resulted in a net sales increase of 32 percent, noted Ed Baddour, Jr., vice president. "The volume is what creates the profitability," he said. "It's helped my business tremendously."

Baddour has used Nesquik as a key part of his health initiative in school accounts. "You can't claim to be a healthy company and not carry milk," he said.

Baddour isn't worried about competition from Coke. He carried Bravo! Foods' Slammers® before Coke secured its exclusive arrangement with Bravo! Foods, and he found that schools didn't like having candy branding on their machines.

Baddour agreed that all beverages sell better in glassfronts than closed fronts, but he isn't yet convinced that the glassfront beverage machines are as reliable as the closed fronts.

VIEWS MIXED ON NUTRITIONAL BENEFITS OF SHELF STABLE MILK

Coca-Cola Bottling of Yakima and Tri Cities, a bottler/vendor based in Yakima, Wash., welcomes shelf stable milk, said Jeff Hemp, on-premise manager for vending. "It's the way to go," he said. "Longer shelf life is definitely a huge plus. We don't have refrigeration on every truck."

Hemp plans to ship the Nesquik on his soda trucks. He has three facings of milk in glassfront cold beverage machines in schools, B&I accounts and hospitals.

Hemp doesn't think consumers in general view the Nesquik as less nutritious than other milk. "The nutritional value outweighs the sugar value or fat in it; the 'good' in it outweighs the 'bad.'" He noted that the product meets school nutrition requirements, and he welcomes the opportunity to educate customers about healthy options.

Hemp's company continues to carry half pint milk from a local dairy in its cold food machines, priced at 60 cents. The Nesquik pints are mostly in school beverage machines, priced at $1.25. He said the profit margin is lower, but the net revenue is higher on the Nesquik sales.

In reviewing milk sales, Hemp was curious to notice that middle schools and colleges both moved more milk than high schools.

"Anywhere you have a pop machine, you should be able to vend milk," Hemp said. "People don't go to a pop machine to get milk (presently), but they will."

As a Coke bottler, Hemp will have access to Bravo! Foods' Slammers® line. He welcomes more variety. "There's room for variety in milk," he said.

Hemp is also encouraged by the fact that Coke took initiative in buying a stake in a milk company. "The fact that Coke got Bravo! says there's a future," he said.

VITAMIN FORTIFIED HELPS

Alan Drazen, vice president of Midlantic Vending in Columbia, Md., is more enthusiastic about the 1 percent fat content of Nesquik than about the shelf stable aspect. He noted that his company already has refrigerated trucks, so the shelf stable isn't an advantage.

Nesquik's reduced fat content has allowed Midlantic Vending to maintain sales in schools that have required him to remove ice cream.

He also gives Nestlé high marks for product quality. "It hasn't lost anything in terms of the flavor profile and the body of the flavor where they've replaced fat," he said.

Drazen said student spending capacity has a lot to do with Nesquik's success. The higher the disposable income, the higher the sales.

VIEWS MIXED ON THE IMPORTANCE OF MILK BRANDING

Drazen disagrees with those operators who think consumers are less brand focused on milk than other products. He has received an enthusiastic response to the product from school dietitians. "The consumer today is looking for a branded milk product," he said. "Unless you deliver product in a flavor profile and with proper branding, you're not going to get them to drink the calcium."

Cromer Food Service Inc. in Greenville, S.C. isn't interested in shelf stable milk. Brent Cromer, president, hasn't noticed his B&I accounts any less loyal to the half-pint milk he sources from a local dairy which he prices at 60 cents.

Cromer reflected the view of many operators in noting that he likes to place milk in the cold food machine since it doesn't incur a commission there and it helps fill the machine faster. "When you add milk to the mix (in the refrigerated machine), you don't have to put as much food in there," he said.

Sanese Services Inc., based in Columbus, Ohio, has opted to use Shamrock Farms' 12-ounce, ESL offerings priced at $1.25, noted Matt Warner, purchasing director. The Shamrock Farms products go in the glassfront cold drink machines and in the food machines, while the fresh milk goes in the food machines.

SOME SEE A BIG NEED FOR WHITE MILK

Warner said the decision to use Shamrock Farms was based on the observation that milk sales break down as follows: 50 percent chocolate, 30 percent white and 20 percent a combination of 2 percent fat and flavored.

"That (white milk) is the big key that makes this program successful," he said.

Warner also noted that the main milk customer is the B&I account. "We're not selling to the kids as much," he said.

Warner agreed with Baddour that $1.25 is the magic price point. "I really think if you go above $1.25 it hurts," he said.

Sanese Services has tried both the Coke Slammers® and the Pepsi Quaker Chillers products, Warner said, but has not had much luck with them. Both items were priced at $2.00 or more.

Coca-Cola Enterprises does not plan to focus on schools exclusively, noted Matt Smith, director of new product innovation for that company. "We think there is opportunity to sell single-serve milk, period," he said. "We can broaden milk availability in places where it has not been available. We want to participate in any and all of the arenas where milk is sold."

Smith said there are machine graphics available to promote Slammers®. In the meantime, many operators remain concerned about the price of the shelf stable products. "The minute you charge more, you sell less," said Jerry Bos, who operates J. Bos Vending service Inc. in Grand Rapids, Mich. "People aren't getting raises. It's offensive to them when you raise a price."

Bos purchased shelf stable milk (Slammers®) when it was available at Sam's Wholesale Club at one time; it was then available at a price that allowed him to charge $1.00 and make a good margin.

Bos also noted that shelf life is not as important for milk as it is for sandwiches. "Sometimes you need more time to sell the product, but it's less so with milk" than sandwiches, he said.

Bos doesn't' believe that the branding means as much in milk as in other categories. "The people that drink milk don't really care what brand it is," he said. "He either drinks milk or he doesn't. You don't get that brand loyalty."

Milk will continue to increase as operators continue fielding requests for healthier options and as new packaging configurations become easier for operators to work with.

The demand will also rise as operators begin working with more glassfront cold drink machines, which showcase more facings than traditional beverage machines.

The extent to which the market will be driven by the beverage giants remains to be seen.